This is Frederic Mari's blog about economics, finance, macro-economics and pretty much whatever else he happens to fancy talking about at a given time...

Monday, 24 February 2014

RANDOM THOUGHTS ON UKRAINE, EUROPE AND THE FUTURE

This will be a fairly unstructured post. Too many things to say and too much emotion.

70+ people died to give Ukraine this moment. Thousands more stayed on Maidan and hundreds fought on when they were gunned down by snipers in cold blood.

It is the collective duty of the Ukrainians to honour this courage by NOT wasting this opportunity. And it is the duty of their friends in the EU or elsewhere to help them, when we can.

The Ukrainian Parliament ought to vote a law giving the widows of those who fell at Maidan the same kind of pension awarded to the widows of soldiers. They died fighting the internal enemies of Ukraine. This is no less brave nor less deserving than fighting foreign enemies.

But the most important thing, right now, is to avoid a repeat of the Orange Revolution's mistakes.

That means that most existing politicians - very much including Tymoshenko, 'the gas princess' - and a significant chunk of the high ranking administrative and judicial officials should be barred from exercising such functions in the years to come. Even if the loss of expertise was meaningful (I doubt it but I could be wrong), rookie mistakes are preferable to active sabotage and organised theft.

It also means that most of the wealth of the oligarchs and that of The Family should be seized back. Usually, this idea is met with some push-back, though everyone is okay with taking Yanukovich's fortune. For Ukrainians, it evokes fears of 1917 and communist collectivization. As if I was proposing to seize everyone's car... (Ukrainian men really love their cars - it's not a mode of transportation as much as the outward symbol of their material success and virility).

And when I mention that the wealth should then be spread across the citizens, I am reminded that such schemes were tried (briefly and sporadically at best) in the 90s and ended badly: People sold their rights for a pittance because they needed cash to survive and/or were forced to sell at gunpoint by... well, ultimately, today's surviving oligarchs, however torturous and indirect the assets' actual ownership history.

I guess a valid alternative would be some kind of Sovereign Wealth Fund.

Ukraine needs to avoid default, if possible and, more importantly, desperately need a lot of long term investment in its infrastructure.

Two quick examples: Agriculture. Agriculture represents between 15 and 20% of Ukraine's exports (Ukraine is crucial to the feeding of the MENA region). It is also a major employer. Yet agriculture is beset by under-investment in transportation and storage facilities. This should be corrected a.s.a.p. Also, investments into transformation (milk farms, bovine meat etc) should be considered.

Another sector in desperate need of funds is Energy. Ukraine is one of the least energy efficient country in the world. When I want to reduce the heating in my flat in winter, I have to open the window... And the energy bill is also a major drag on Ukraine's public finances. Not to mention a strategic weakness Russia has been able to abuse repeatedly. So a big push in energy efficiency would deliver considerable benefits to all.

Speaking of Russia. I have had several clashes with internet trolls but also some friends about the role of Russia and the EU in this Ukrainian crisis. I don't know to which extent Russia actively supported Yanukovich. Certainly, their propaganda/news reporting was outrageous.

I don't know how much the West helped the opposition. The formal Parliamentary opposition and its 3 leaders were always a step behind the crowds on Maidan, always willing to compromise, always on the look-out for their careers. (As an aside, I personally regret Klischko could not rise to the challenge. He seems earnest and genuine, even if he lacks the polished oratory skills of the more professional politicians. But, either way, none of the 3 opposition leaders can credibly claim to speak for the Ukrainian people of Maidan).

But where I disagree with my Russian friends is that I do not think the EU and Russia are the same things, players on opposing sides in a modern revival of The Great Game.

Or, to be precise, I do not believe that this is what the EU is trying to achieve while Putin seems hell-bent on playing at the (re)creation of the Russian Empire.

I may be naive but I think that, even if the EU did threaten Yanukovich to get him to back down, it is not similar to the threats Putin made to get him to refuse to sign the EU trade agreement. Putin wants Ukraine as a client state. That much is clear.

What does the EU want? Certainly not to integrate Ukraine within its Union. We've had enough semi-poor Eastern European basket-cases joining the EU to last us a generation. To block and surround Russia? Whatever for? As long as Russia sells us its gas and does not invade Poland or the Baltic, who in the EU gives a toss what Russia does or does not do? No-one! We have no reason to fight with Russia (or to integrate Ukraine). All we want from either, we can get, through trade.

Now, sure, discounted gas would be nice but I don't see how 'stealing' Ukraine from Russia would achieve that particular goal and invading Russia to get cheap gas would be so outlandishly stupid and militarily suicidal it annoys me to have to write the sentence down, just to show I have considered and discounted the possibility.

Do not get me wrong. Given that the EU transformed itself from an original club of competently run countries (France, Germany and the Benelux, basically) into a European Civilisation Club (much to my dismay but that's irrelevant), I see no reasons Ukraine should not join, eventually. But then, so should Russia. To make it simple, they're both White, Christian countries i.e. they are most definitely part of the European Civilisation and so I see no reasons we should welcome Poland or Finland or Crete but not Russia or Ukraine.

Of course, I very much doubt Putin would find joining the EU to his taste. After all, that would make his little game of Risk utterly irrelevant. And what would he do for fun, then?

Ukrainians are just people who deserve a shot at political normality, at Western European standards of living and the associated rule of law and respect for the fundamental rights of the individual, like everyone else on the planet.